Zee Entertainment -2QFY11: Revenue in line with expectations :: UBS

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UBS Investment Research
Zee Entertainment Enterprises Ltd
2QFY11: Revenue in line with expectations
􀂄 Net profit below UBS-e due to higher tax payments (38.8% tax rate)
Zee Entertainment (Zee) 2QFY11 revenues grew 5% qoq to Rs7.1bn, in line with
UBS estimate of Rs7.1bn. EBITDA grew 1% qoq to Rs1.9bn (UBS estimate
Rs2.0bn), EBITDA margin declined 110bps qoq to 26.5%. PBT came in at
Rs2.1bn, 2.4% higher than our estimate due to higher other income. Net profit
came at Rs1.26bn, below UBS estimate (Rs1.4bn) due to higher tax paid. The
effective tax rate for the quarter was 38.8% (was 35.1% in 1QFY11).
􀂄 Advertising revenue grew 9.3% qoq, subscription revenues grew 4.7%
Ad revenue of Rs4.1bn was ahead of UBS estimate of Rs3.9bn. Subscription
revenue grew 4.7% qoq to Rs2.7bn in line with UBS estimate of Rs2.7bn, led by
53% growth in DTH revenue. EBITDA margin was below estimates primarily due
to higher programming costs (increased from 45.1% in 1QFY11 to 48.6%).
􀂄 Maintain positive outlook on Zee in the long term
Zee is a beneficiary of increasing cable TV digitisation that leads to an increase in
subscriber reporting by local cable operators, and hence reduces revenue leakages.
We believe Zee is well poised for advertising revenue growth with the regional
entertainment business acquisition.
􀂄 Valuation: Maintain Buy with DCF-based price target of Rs360
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool.